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Law of Demand: Exceptions to the Law of Demand

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Law of Demand: Exceptions to the Law of Demand!

Demand is always at a price and the consumer varies his consumption according to changes in price. Generally a person will buy more at a lower price. The opposite is also equally true. Hence, it can be easily said that demand for a commodity is less at a higher price, and more at a lower price.

Since this is true in all cases and under all conditions, the economists call it a law, that is, the law of demand. The law of demand states that other things remaining the same, more will demanded at lower prices and lesser at higher prices. It should be carefully noted that the law of demand states the relationship between the price level and the commodity demanded. It does not state the proportion of change between them.

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The phrase “other things remaining the same” is a very important qualifying phrase in the law. It is so because demand is not a function of price alone. Demand also depends on many other factors like population, size of income, prices of related commodities, tastes and preferences, etc.

Now if there is a change in the price and also there is a change in any one or more of these factors, it will not be possible to predict the result. For instance, if the price of milk rises and at the same time population is that area also increases, it would not be possible to tell what would happen to quantity of milk demanded.

A similar difficulty will arise if the price of one commodity rises while that of the badminton racket falls, we cannot be certain whether people will either purchase more rackets or less or purchase more shuttlecocks or less. To avoid such complication we use the above phrase and assume that prices of other commodities, tastes and preferences of the consumers, incomes of the consumers etc., do not change.

Exceptions to the law of Demand:

To the general law of demand there are many exceptions:

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(I) In the first place, the law does not operate in case of goods wanted as marks of distinction or fashion. Thus, when the price of diamonds rises, their demand may expand because being costlier they are considered a better mark of distinction and so rich people might purchase more of them. The opposite will be true if their price falls.

(II) Secondly, in case of those commodities where consumers judge the quality by price, the law ceases to operate. In such a case, say cosmetics, customers adjudge products selling at higher prices as superior and are willing to pay higher prices for them.

(III) Thirdly, if people anticipate that the price of commodity will rise in future, they would purchase more at the prevailing price which may be higher than what it was in the past.